The long-term capacity expansion strategy that can be called a capacity straddle strategy is
A)One large capacity increase
B)Small capacity increases that match demand
C)Small capacity increases that lead demand
D)Small capacity increases that lag demand

Question

Quizplus · Accepted Answer

A capacity straddle strategy involves making small capacity increases that match demand. This enables the firm to operate at optimal levels without over or underutilizing capacity, minimizing costs and maximizing profits. One large capacity increase (option A) could lead to overcapacity and reduced profits in the short-term, while small increases that lead demand (option C) could result in overcapacity in the long-term. Similarly, small capacity increases that lag demand (option D) could lead to lost sales and reduced profits.

The Long-Term Capacity Expansion Strategy That Can Be Called a Capacity